Inflation, pensions, inequality among Chile’s economic challenges

Santiago, Nov 15 (EFE).- Skyrocketing inflation, an uncapitalized pension system and inequality that has been exacerbated during the pandemic are all challenges that Chile’s next president will face in a country that has stopped being the “oasis” it was before October 2019, when the most serious protests since the Augusto Pinochet dictatorship erupted.

The seven candidates vying for the presidency in the Nov. 21 elections represent a very broad political spectrum ranging from the extreme right that seeks to minimize the role of the state and cut taxes to the extreme left, seeking to expropriate mining, and including more moderate positions that seek to create a society with greater well-being for all.

Voter surveys, which have lost significant clout and prestige since the latest elections, forecast that no candidate will win the first electoral round outright and that the two biggest vote-getters who will face off in the Dec. 19 runoff in all likelihood will be leftist Gabriel Boric, with the Broad Front, and Jose Antonio Kast, with the ultrarightist Republican Party.

The experts, however, are saying not to be so quick to rule out centrist candidate Yasna Provoste or Sebastian Sichel, with the governing right, since these are the most uncertain elections Chile has held since democracy was reestablished in 1990 and 50 percent of the voters say they are still undecided on whom they will support.

“It will be a very difficult 2022, with annual growth projected at barely 2 percent and amid a context of reduction of fiscal transfers and the withdrawal of monetary stimulus, which implies higher interest rates,” Francisco Castañeda, the director of the Business School at the Universidad Mayor, told EFE.

Simultaneously, a convention made up mainly of progressive citizens is working at full speed to draft a new Constitution before next July, a document that will preserve the solidarity of the state and replace the prevailing one, which was inherited from the Pinochet dictatorship and is of a neoliberal bent.

Alejandro Micco, an economist with the Universidad de Chile and former undersecretary of finance, told EFE that the big challenge is “maintaining certainty regarding the future of the country’s economic policy” so that Chile’s “country risk (status) or taxes” are not adversely affected.

Along the same lines, the president of Chile’s big business organization, Juan Sutil, said that “Investors pause their decision-making until they have some certainty. And this is just what we’ve been seeing in recent months.”

The coronavirus pandemic caused a 5.8 percent plunge in Chile’s GDP in 2020, the worst drop in four decades, and the loss of almost two million jobs.

The recovery, however, is happening more quickly than expected. In the second quarter of this year, the GDP grew by an annualized 18.1 percent, the biggest jump since records have been kept, and the unemployment rate dropped in September to 8.4 percent.

The Central Bank of Chile expects growth for 2021 to come in at between 10.5 percent and 11.5 percent, and for 2022 it should be 2.5 percent.

Recaredo Galvez, with the progressive think-tank Fundacion Sol, said that “You have to push a reactivation that won’t be unstable, that’s the big challenge for the government and for Parliament,” with voters also selecting all the national congressman and one half of the senators the upcoming elections.

Copper, for which Chile is the world’s biggest producer, to a great extent has been pushing the recovery and will continue to do so, although one must be “attentive” to the slowdown in the Chinese economy, Galvez warned.

The red metal on May 10, 2021, reached its maximum price of $4.86 per pound, exceeding even the levels seen during the “supercycle” of 2011, and the Chilean Copper Commission (Cochilco) estimates that it will close out the year at an average of $4.20 per pound.

Well-known economist Ricardo Ffrench Davis, the winner of the National Humanities and Social Sciences Award, told EFE that Chile must eliminate the endemic inequality that fostered the 2019 wave of protests, since only by doing so will there be “certainty and social peace.”

Regarding inequality, he said, “we’ve backslid during these past two years, with obstacles like having lost almost $50 billion in prior savings.”

“Money has gotten more liberalized: The critics of neoliberalism are doing neoliberalism when they say they want to manage their money themselves,” said Ffrench Davis, who proposed increasing taxes in 2022 and levying a one-time tax on people who earned more during the crisis.

Chile, a pioneer in Latin America in individual capitalization, has allowed three early withdrawals of 10 percent of retirement funds, paying more out than $48 billion.

The majority of the presidential candidates agree that the system provides very low retirement pensions and needs overhauling.

Inflation, the experts agree, could be one of the main headaches for the next president.